-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DRc8UnEtA1Uv8tbOtmkdMDt2BHp0t8YMSkLVXuRDK9+Nxg8juKaShSxMPNqg+u2q 499lTHOTht7TuUkzR6S4Jw== 0001029869-98-001071.txt : 19980826 0001029869-98-001071.hdr.sgml : 19980826 ACCESSION NUMBER: 0001029869-98-001071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980711 FILED AS OF DATE: 19980825 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AU BON PAIN CO INC CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 98697350 BUSINESS ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232100 MAIL ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 AU BON PAIN CO., INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - - - - - - - - - - - - - - FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) - ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 11, 1998 OR - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 0-19253 --------- Au Bon Pain Co., Inc. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2723701 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 19 Fid Kennedy Avenue, Boston, MA 02210 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) (617) 423-2100 --------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------ (Former name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- As of August 21, 1998, 10,398,030 shares and 1,572,907 shares of the registrant's Class A and Class B Common Stock, respectively, $.0001 par value, were outstanding. AU BON PAIN CO., INC. INDEX
FINANCIAL INFORMATION PAGE --------------------- ---- PART I. ITEM 1. FINANCIAL STATEMENTS................................ 3 - ------ Consolidated Balance Sheets as of July 11, 1998 and December 27, 1997................. 3 Consolidated Statements of Operations for the twelve and twenty-eight weeks ended July 11, 1998 and July 12, 1997............... 4 Consolidated Statements of Cash Flows for the twenty-eight weeks ended July 11, 1998 and July 12, 1997..................... 5 Notes to Consolidated Financial Statements.......... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 8 PART II. OTHER INFORMATION - -------- ----------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................. 13 ITEM 5. OTHER INFORMATION................................... 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 14
2 Item 1. Financial Statements AU BON PAIN CO., INC. CONSOLIDATED BALANCE SHEETS
July 11, December 27, 1998 1997 ---- ---- ASSETS (unaudited) - ------ Current assets: Cash and cash equivalents......................... $ 690,052 $ 853,025 Accounts receivable, net.......................... 6,698,686 9,427,190 Inventories....................................... 6,114,877 9,116,794 Prepaid expenses.................................. 2,919,413 775,036 Refundable income taxes........................... 595,916 595,916 Deferred income taxes............................. 600,040 600,040 ------------ ------------ Total current assets.......................... 17,618,984 21,368,001 ------------ ------------ Property and equipment, less accumulated depreciation and amortization..................... 102,475,769 112,231,916 ------------ ------------ Other assets: Notes receivable.................................. 4,667,664 4,742,994 Intangible assets, net of accumulated amortization 30,689,925 31,360,459 Deferred financing costs.......................... 1,036,974 952,591 Deposits and other................................ 11,238,442 9,097,477 Deferred income taxes............................. 6,761,983 6,761,983 ------------ ------------ Total other assets............................ 54,394,988 52,915,504 ------------ ------------ Total assets.................................. $174,489,741 $186,515,421 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable.................................. $ 6,682,375 $ 7,070,881 Accrued expenses.................................. 12,711,853 13,917,058 Current maturities of long-term debt.............. 40 800 438,100 ------------ ------------ Total current liabilities..................... 19,435,028 21,426,039 Long-term debt, less current maturities............. 34,236,294 42,526,752 Convertible Subordinated Notes...................... 30,000,000 30,000,000 ------------ ------------ Total liabilities............................. 83,671,322 93,952,791 ------------ ------------ Minority interest................................... 181,588 287,847 Stockholders' equity: Common stock, $.0001 par value: Preferred stock, $.0001 par value: Class B, shares authorized 2,000,000; issued and outstanding none in 1998 and 1997, respectively Class A, shares authorized 50,000,000; issued and outstanding 10,398,030 and 10,187,042 in 1998 and 1997, respectively........................... 1,034 1,019 Class B, shares authorized 2,000,000; issued and outstanding 1,572,907 and 1,610,038 in 1998 and 1997, respectively............................... 161 161 Additional paid-in capital......................... 69,576,876 68,485,661 Retained earnings.................................. 21,058,760 23,787,942 ------------ ------------ Total stockholders' equity.................... 90,636,831 92,274,783 ------------ ------------ Total liabilities and stockholders' equity.... $174,489,741 $186,515,421 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 3 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
for the 12 weeks ended for the 28 weeks ended ---------------------- ----------------------- July 11, July 12, July 11, July 12, 1998 1997 1998 1997 ----------- ----------- ------------ ------------ Revenues: Restaurant sales.............. $53,942,016 $54,120,469 $123,661,755 $121,776,084 Franchise sales and other revenues.................... 3,311,576 4,699,321 8,555,120 8,553,523 ----------- ----------- ------------ ------------ 57,253,592 58,819,790 132,216,875 130,329,607 Costs and expenses: Cost of food and paper products..................... 19,965,766 20,833,718 48,032,540 46,576,468 Restaurant operating expenses: Labor..................... 15,302,104 15,079,213 34,739,946 33,546,079 Occupancy................. 6,918,325 7,167,680 13,983,396 14,393,646 Other..................... 6,320,271 6,578,102 14,036,827 14,139,453 ----------- ----------- ------------ ------------ 28,540,700 28,824,995 62,760,169 62,079,178 Depreciation and amortization. 3,934,950 3,919,262 9,202,750 8,998,339 General and administrative expenses.................... 4,472,077 3,753,654 9,946,568 8,667,617 Non-recurring charge.......... -- -- 1,210,000 -- ----------- ----------- ------------ ------------ 56,913,493 57,331,629 131,152,027 126,321,602 ----------- ----------- ------------ ------------ Operating income................ 340,099 1,488,161 1,064,848 4,008,005 Interest expense, net........... 1,407,935 1,608,072 3,534,676 3,743,236 Other expense, net.............. 78,440 229,513 216,005 500,624 Loss on sale of assets.......... -- -- 734,823 -- Minority interest............... 8,105 (31,986) 25,527 20,282 ----------- ------------ ------------ ------------ Income (loss) before provision for income taxes.............. (1,154,381) (317,438) (3,446,183) (256,137) Provision (benefit) for income taxes......................... (375,000) (151,833) (717,000) (102,455) ----------- ----------- ------------ ------------ Net income (loss)............... $ (779,381) $ (165,605) $ (2,729,183) $ (153,682) =========== =========== ============ ============ Net income (loss) per common share - basic.......... $ (0.07) $ (0.01) $ (0.23) $ (0.01) =========== =========== ============ ============ Net income (loss) per common share - diluted........ $ (0.07) $ (0.01) $ (0.23) $ (0.01) =========== =========== ============ =========== Weighted average number of common and common equivalent shares outstanding - basic................... 11,903,632 11,758,178 11,867,016 11,751,454 =========== =========== ============ ============ Weighted average number of common and common equivalent shares outstanding - diluted................. 11,903,632 11,758,178 11,867,016 11,751,454 =========== =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 4 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
for the 28 weeks ended ------------------------------ July 11, July 12, 1998 1997 ------------ -------- Cash flows from operations: Net income (loss)............................ $(2,729,183) $ (153,681) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..................... 9,202,750 8,998,339 Amortization of deferred financing costs.......... 385,764 263,165 Provision for losses on accounts receivable....... 30,550 29,189 Minority interest................................. 25,527 20,282 Deferred income taxes............................. - 19,123 Non-recurring charge.............................. 1,210,000 712,828 Loss on sale of assets............................ 734,823 -- Changes in operating assets and liabilities: Accounts receivable............................... 789,426 (826,451) Inventories....................................... 799,648 (291,804) Prepaid expenses.................................. (2,334,592) (810,904) Accounts payable.................................. (388,506) (1,464,985) Accrued expenses.................................. (1,069,353) (3,268,907) ----------- ----------- Net cash provided by operating activities....... 6,656,854 3,226,194 ----------- ----------- Cash flows from investing activities: Additions to property and equipment............... (8,989,727) (8,017,600) Proceeds from sale of assets...................... 12,693,917 -- Payments received on notes receivable............. 120,330 49,112 Increase in intangible assets..................... (93,641) (54,784) Decrease/(increase) in deposits and other......... (2,299,982) 1,422,554 Increase in notes receivable...................... (45,000) -- ----------- ----------- Net cash provided by (used in) investing activities.......................... 1,385,897 (6,600,718) ------------ ----------- Cash flows from financing activities: Exercise of employee stock options................ 874,311 22,641 Proceeds from long-term debt issuance net of deferred financing costs..................... 43,396,342 36,658,341 Principal payments on long-term debt.............. (52,084,100) (34,758,933) Proceeds from issuance of common stock............ 216,920 -- Deferred financing costs.......................... (477,411) (43,206) Decrease in minority interest..................... (131,786) (203,021) ----------- ----------- Net cash provided by (used in) financing activities.................................... (8,205,724) 1,675,822 ----------- ----------- Net increase (decrease) in cash and cash equivalents......................................... (162,973) (1,698,702) ----------- ----------- Cash and cash equivalents, at beginning of period..... 853,025 2,578,830 ----------- ----------- Cash and cash equivalents, at end of period........... $ 690,052 $ 880,128 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 5 Notes to Consolidated Financial Statements Note A - Basis of Presentation The accompanying unaudited, consolidated financial statements of Au Bon Pain Co., Inc. and Subsidiaries (the "Company") have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with generally accepted accounting principles. They should be read in conjunction with the financial statements of the Company for the fiscal year ended December 27, 1997. The accompanying financial statements are unaudited and include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods, and are not necessarily indicative of the results that may be expected for the entire year. Note B - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share.
for the twelve weeks ended -------------------------- July 11, July 12, 1998 1997 -------- -------- Net income (loss) used in net income (loss) per common share - basic................................ $ (779,381) $ (165,605) =========== =========== Net income (loss) used in net income (loss) per common share - diluted.............................. $ (779,381) $ (165,605) =========== =========== Weighted average number of shares outstanding - basic.................... 11,903,632 11,758,178 Effect of dilutive securities: Employee stock options............. -- -- Stock warrants..................... -- -- Weighted average number of shares outstanding - diluted.............. 11,903,632 11,758,178 =========== =========== Net income (loss) per common share - basic................................ $ (.07) $ (.01) =========== =========== Net income (loss) per common share - diluted.............................. $ (.07) $ (.01) =========== ===========
Note C - Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information", which changes the manner in which public companies report information about their operating segments. SFAS No. 131, which is based on the management 6 approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenue. Management is currently evaluating the effects of this change on its reporting of segment information. The Company will adopt SFAS No. 131 for its fiscal year ending December 26, 1998. Note D - Subsequent Events On August 12, 1998, Au Bon Pain Co., Inc. (the "Company"), ABP Holdings, Inc., a Delaware corporation and wholly owned subsidiary of the Company (the "Subsidiary"), and ABP Corporation, a Delaware corporation controlled by Bruckmann, Rosser, Sherill & Co., Inc., a private equity investment firm based in New York (the "Buyer"), entered into a Stock Purchase Agreement (the "Agreement"), which contemplates (i) the transfer from the Company to the Subsidiary of substantially all of the operating assets, store leases, contracts and liabilities associated with the Company's bakery cafe food service business concept generally known as Au Bon Pain (collectively, the "Au Bon Pain Division") and (ii) the sale of all of the capital stock of the Subsidiary to the Buyer (the "Sale"), whereby the Buyer will become the owner of the Au Bon Pain Division. The Sale will become effective subject to the terms and conditions of the Agreement, including, but not limited to, the approval of the stockholders of the Company, consents of certain landlords, governmental approvals, and consummation of financing pursuant to previously obtained commitments from Buyer's lenders and investors, of which no assurance can be given. In the event the Sale is consummated, the Company expects to record a non-cash after-tax loss of approximately $20 million in connection with the Sale. The description of the Agreement is qualified in its entirety by reference to Form 8-K and the exhibits attached thereto, including the Agreement, filed with the Commission on August 21, 1998. The purchase price payable to the Company upon the effectiveness of the Sale shall be seventy-eight million dollars ($78,000,000), subject to possible purchase price adjustments, as described in the Agreement. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues of certain items included in the Company's consolidated statements of operations for the periods indicated:
For the For the 12 weeks ended 28 weeks ended -------------------- ------------------ July 11, July 12, July 11, July 12, 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Restaurant sales ............. 94.2% 92.0% 93.5% 93.4% Franchise sales and other revenues ............. 5.8 8.0 6.5 6.6 ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of food and paper products ............. 34.9% 35.4% 36.3% 35.7% Restaurant operating expenses ................... 49.8 49.0 47.5 47.6 Depreciation and amortization ............... 6.9 6.7 7.0 6.9 General and administrative ............. 7.8 6.4 7.5 6.7 Non-recurring reserve ........ -- -- 0.9 -- ----- ----- ----- ----- 99.4 97.5 99.2 96.9 ----- ----- ----- ----- Operating margin ............... 0.6 2.5 0.8 3.1 Interest expense, net .......... 2.5 2.7 2.7 2.9 Other expense, net ............. 0.1 0.4 0.2 0.4 Loss of sale on assets ......... -- -- 0.5 -- Minority interest .............. -- (0.1) -- -- ----- ----- ----- ----- Income (loss) before provision (benefit) for income taxes ................. (2.0) (0.5) (2.6) (0.2) Provision (benefit) for income taxes ................. (0.6) (0.2) (0.5) (0.1) ----- ----- ----- ----- Net income (loss) .............. (1.4)% (0.3)% (2.1)% (0.1)% ===== ===== ===== =====
General The Company's revenues are derived from restaurant sales and franchise sales and other revenues. Franchise sales and other revenues include sales of frozen dough products to franchisees and others, royalty income and franchise fees. Certain expenses (cost of food and paper products, restaurant operating expenses, and 8 depreciation and amortization) relate primarily to restaurant sales, while general and administrative expenses relate to all areas of revenue generation. The Company's fiscal year ends on the last Saturday in December. The Company's fiscal year normally consists of 13 four-week periods, with the first, second and third quarters ending 16 weeks, 28 weeks and 40 weeks, respectively, into the fiscal year. Results of Operations Total revenues for the twelve weeks ended July 11, 1998 decreased 3% to $57.2 million from $58.8 million for the comparable period of 1997, comprising an 18.3% increase in total revenues at the Saint Louis Bread business unit and a 10.3% decrease in total revenues at the Au Bon Pain business unit. Total revenues increased in the Saint Louis Bread/Panera Bread business unit to $18.6 million in the second quarter of 1998, driven principally by positive comparable restaurant sales and incremental revenues from the seven and five company-owned bakery cafes opened in 1997 and 1998 to-date, respectively. Comparable restaurant sales at Saint Louis Bread Co./Panera Bread continued at a moderately strong pace, increasing 2.9% in the second quarter of 1998 versus the comparable period of 1997. This increase is on top of the 9.8% comparable restaurant sales increase of the second quarter of 1997. In the Au Bon Pain business unit, total revenues decreased to $38.7 million for the second quarter of 1998, reflecting the closing of certain restaurants in 1997 and 1998 and the franchising of eleven stores in the Philadelphia market in the third quarter of 1997. Comparable restaurant sales for the Au Bon Pain business unit in the second quarter of 1998 increased by .9%. Operating income in the second quarter of 1998 decreased to $340,000, versus $1,492,000 in the second quarter of 1997, as operating margin was .6% in the second quarter of 1998 versus 2.5% in the comparable period of 1997. The 1.9 point year-over-year decline in margin was a result of increased food costs as a percentage of total revenues, particularly butter and previously-contracted-for- coffee, an increase in overall general and administrative expenses, including increased expenses to support the company's 1998 projected growth, and lower contribution in the second quarter of 1998 from the Au Bon Pain International and Trade Channels business unit. At the Saint Louis Bread Co./Panera Bread business unit, operating margin decreased .8% in the second quarter of 1998 versus the comparable quarter of 1997 due to increased general and administrative and other infrastructure expenses to support the business unit's projected 63% systemwide unit growth in 1998 over 1997. Operating margin in the Au Bon Pain business unit in the second quarter of 1998 was 3.1 points below that of the second quarter of 1997, as the Au Bon Pain business unit results were significantly impacted by higher percentage food costs, principally in the areas of 9 butter, coffee, and produce costs. In addition, the Au Bon Pain International and Trade Channels business unit earnings decreased significantly versus the comparable quarter of 1997, attributable to some sales softness in the Asian markets and particularly strong fees in the second quarter of 1997. During the second quarter of 1998, six Saint Louis Bread Co./Panera Bread franchise area development agreements were signed, representing commitments for the development of 66 bakery cafes and increasing the number of franchise commitments to a total of 452 bakery cafes to be developed. Nine Saint Louis Bread/Panera Bread bakery cafes were opened in the second quarter of 1998, including three company-owned cafes and six franchise-operated cafes. For the Au Bon Pain International and Trade Channels business unit, nine franchise-operated units opened in the second quarter of 1998. Net Income The Company recorded a net loss in the second quarter of 1998 of $779,381 versus a net loss of $165,605 in the comparable 1997 period. Interest expense decreased to $1,408,000 in the second quarter of 1998 versus $1,608,000 in the comparable period in 1997 with other expense of $88,000 at July 11, 1998 compared to $198,000 at July 12, 1997. Liquidity and Capital Resources The Company's principal requirements for cash are capital expenditures for constructing and equipping new bakery cafes, maintaining or remodeling existing bakery cafes and working capital. To date, the Company has met its requirements for capital with cash from operations, proceeds from the sale of equity and debt securities and bank borrowings. For the twenty-eight weeks ended July 11, 1998, operating activities provided $6.7 million versus $3.2 million for the comparable period of 1997. Funds provided by operating activities were primarily the result of the sale of assets and decreases in accounts receivable and inventories, offset by an increase in prepaid expenses and decreases in accrued expenses. In 1997, cash was generated by disposal of assets offset by decreases in accounts payable and accrued expenses. Total capital expenditures for the twenty-eight weeks ended July 11, 1998 of $9.0 million were related primarily to the construction of new Saint Louis Bread bakery cafes and commissaries and the remodeling of existing Au Bon Pain bakery cafes. The expenditures were funded principally by net cash from operating activities and by use of the Company's revolving line of credit. Total capital expenditures for the twenty-eight weeks ended July 12, 1997 were $8.0 million. On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrue 10 interest at varying fixed rates over the four-year term, ranging between 11.25% and 14.0%. In connection with the private placement, warrants with an exercise price of $5.62 per share were issued to purchase between 400,000 and 500,000 shares of the Company's Class A common stock, depending on the term during which the debentures remain outstanding and certain future events. The net proceeds of the financing were used to reduce the amount outstanding under the Company's bank revolving line of credit. With the senior subordinated financing and the Company's revolving line of credit, the Company's management believes it has the capital resources necessary to meet its growth goals through 1998. On March 23, 1998 the Company sold its Mexico, MO production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. The net proceeds of the sale were used to repay the $7.9 million outstanding for the Industrial Revenue Bond and to reduce amounts outstanding under the revolving credit line. There were no gains or losses associated with the early retirement of the Industrial Revenue Bond or the partial repayment of the revolving credit line. The Company has a $22.0 million unsecured revolving line of credit which bears interest at the commercial bank's prime rate plus .25% to 2.25%, depending upon certain financial tests performed quarterly. As of July 11, 1998, $17.5 million was outstanding under the line of credit and an additional $1.1 million of the remaining availability was utilized by outstanding letters of credit issued by the bank on behalf of the Company. In 1998, the Company currently anticipates spending approximately $19.0 million for capital expenditures, principally for the opening of new bakery cafes and the remodeling of existing units. The Company expects to fund these expenditures principally through internally generated cash flow. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information", which changes the manner in which public companies report information about their operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenue. Management is currently evaluating the effects of this change on its reporting of segment information. The Company will adopt SFAS No. 131 for its fiscal year ending December 26, 1998. Statements made or incorporated in this Form 10-Q include a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, statements containing the words "estimates", "projects", "anticipates", "believes", "expects", "intends", "future", and words of similar import which express management's belief, expectations or 11 intentions regarding the Company's future performance. The forward-looking statements involve known or unknown risks and uncertainties. The Company's actual results could differ materially from those set forth in the forward-looking statements. Additionally, the Company's operating results may be affected by many factors, including but not limited to, variations in the number and timing of bakery cafe openings and public acceptance of new bakery cafes, competition and other factors that may affect retailers in general. The Company has not completed its assessment of the impact of the Year 2000 issue. It is management's belief that the primary financial systems are Year 2000 compatible. Those systems are being tested for compliance during 1998. Many secondary systems associated with the Company's retail operations will require modifications. It is the Company's belief that existing internal Company resources will be adequate to reprogram these Year 2000 modifications. It is expected that the most significant Year 2000 system issue for the Company is with POS systems used by the Au Bon Pain concept. The Company is in negotiation with several vendors to replace the exiting POS systems with new state-of-the-art systems. The new systems are expected to be leased at a net incremental cost of approximately $400,000 annually for both the Au Bon Pain and Saint Louis Bread concepts. The incremental cost of the new system is expected to be substantially offset by labor efficiency savings associated with the new POS system. 12 PART II. OTHER INFORMATION - -------- ----------------- Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on June 25, 1998, to consider and vote upon the following matters: 1. To elect two (2) members of the Board of Directors, each for a three-year term ending at the Company's 2001 Annual Meeting (the "Directors Proposal"); and 2. To ratify the action of the Board of Directors reappointing Coopers & Lybrand LLP (now known as PricewaterhouseCoopers LLP) as auditors for the Company for the fiscal year ending December 26, 1998 (the "Auditors Proposal"); With respect to the Directors Proposal, each of the following Nominees received the following votes in favor, and withheld, from his nomination:
Nominee For Withheld ------- --- -------- George E. Kane 11,830,151 295,742 Henry J. Nasella 11,866,817 259,076
Accordingly, Messrs. Kane and Nasella were elected as members of the Board of Directors, each to serve a three-year term expiring at the Company's 2001 Annual Meeting and until his successor has been duly elected and qualified. With respect to the Auditors Proposal, 12,097,072 votes were cast for the proposal, 11,288 votes were cast against the proposal, and there were 17,533 abstentions on the proposal. Accordingly, the Auditors Proposal was approved. Item 5. OTHER INFORMATION On August 12, 1998, Au Bon Pain Co., Inc. (the "Company"), ABP Holdings, Inc., a Delaware corporation and wholly owned subsidiary of the Company (the "Subsidiary"), and ABP Corporation, a Delaware corporation controlled by Bruckmann, Rosser, Sherill & Co., Inc., a private equity investment firm based in New York (the "Buyer"), entered into a Stock Purchase Agreement (the "Agreement"), which contemplates (i) the transfer from the Company to the Subsidiary of substantially all of the operating assets, store leases, contracts and liabilities associated with the Company's bakery cafe food service business concept generally known as Au Bon Pain (collectively, the "Au Bon Pain Division") and (ii) the sale of all of the capital stock of the Subsidiary to the Buyer (the "Sale"), whereby the Buyer will become the owner of the Au Bon Pain Division. The Sale will become effective subject to the terms and conditions of the Agreement, including, but not limited to, the approval of the stockholders of the Company, consents of certain landlords, governmental approvals, and 13 consummation of financing pursuant to previously obtained commitments from Buyer's lenders and investors, of which no assurance can be given. In the event the Sale is consummated, the Company expects to record a non-cash after-tax loss of approximately $20 million in connection with the Sale. The description of the Agreement is qualified in its entirety by reference to Form 8-K and the exhibits attached thereto, including the Agreement, filed with the Commission on August 21, 1998. The purchase price payable to the Company upon the effectiveness of the Sale shall be seventy-eight million dollars ($78,000,000), subject to possible purchase price adjustments, as described in the Agreement. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule. (b) Exhibit 10 - Executive Employment Agreement between the Company and Sam Yong dated June 16, 1998. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AU BON PAIN CO., INC. --------------------- (Registrant) Dated: August 25, 1998 By: /S/ LOUIS I. KANE ------------------------------------ Louis I. Kane Co-Chairman Dated: August 25, 1998 By: /S/ RONALD M. SHAICH ------------------------------------ Ronald M. Shaich Co-Chairman and Chief Executive Officer Dated: August 25, 1998 By: /S/ ANTHONY J. CARROLL ------------------------------------ Anthony J. Carroll Senior Vice President and Chief Financial Officer
15 EX-10 2 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made this 16th day of June, 1998, by and between Sam Yong ("Employee") and Au Bon Pain, Co., Inc., a Delaware corporation with a principal place of business in Boston, Massachusetts (the "Company"). WHEREAS, the Company wishes to employ and engage the services of the Employee in an executive capacity for the Company, upon the terms, conditions and provisions of this Agreement; and WHEREAS, the Employee desires to provide services to the Company in accordance with the terms, conditions and provisions of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and Employee hereby agree as follows: 1. Definitions ----------- For all purposes of this Agreement, the following terms shall have the meanings specified in this Section 1 unless the context clearly requires otherwise: (a) "Base Salary" means the Employee's annualized base salary set forth in Section 3 of this Agreement, and such increases thereto as may be established by the Company from time to time. In no event, however, shall Employee's Base Salary be less than the amount set forth in Section 3 of this Agreement. "Base Salary" shall not include any bonus, incentive compensation or employee benefits; (b) "Benefits" means all employee benefits provided to the Employee by the Company, including medical, dental, long-term disability, life insurance, and such other benefits as may be provided from time to time by the Company generally to its employees; (c) "Incentive Compensation" means additional compensation provided to the Employee by the Company during the term of this Agreement, if any, other than Base Salary and Benefits; (d) "Severance" means payments made by the Company to the Employee after termination of employment, pursuant to this Agreement, at the rate of the Employee's annualized Base Salary (and car allowance, if any) as of the date of Employee's termination. Severance is payable, commencing after the last day of active employment with the Company, on a weekly basis in substantially equal installments following Employee's termination, in such increments and for such period(s) of time designated in -2- this Agreement ("Severance Period"). Severance shall not include any bonuses or other Incentive Compensation. Except as set forth in the immediately preceding sentence, Severance shall also include the continuation of Employee's Benefits existing at the time of Employee's termination for the Severance Period. Employee shall be responsible for making all required contributions to continue Benefits during the Severance Period on the same basis as existed at the time of the Employee's termination. Severance shall be reduced (dollar for dollar) by any compensation and benefits Employee receives or earns during the Severance Period from any source other than the Company including, without limitation, salary, employee benefits, consulting fees, income from self-employment or otherwise; 2. Employment ---------- The Company agrees to employ the Employee to render services to the Company in an executive capacity, consistent with the typical duties and responsibilities of an Executive Vice President with the Company, and to maintain the Employee's title as President, Au Bon Pain Brands. Employee understands and agrees that Employee's duties and responsibilities may change from time to time, in the sole discretion of the Company. Effective as of the date hereof, Employee hereby accepts such employment subject to the terms and conditions set forth herein. Employee agrees to devote his full attention, best talents and abilities to the job and to perform faithfully his duties and responsibilities hereunder. 3. Compensation ------------ The Company shall pay Employee a Base Salary at the rate of $300,000.00 annualized, Incentive Compensation, and Benefits, subject to federal and state withholdings and customary payroll deductions. 4. Term ---- Unless terminated as provided in Section 5, or as otherwise provided in this Agreement, this Agreement shall continue for a two-year period from the effective date of this Agreement; thereafter, this Agreement shall automatically renew for additional one-year periods, unless either party notifies the other in writing of its intent not to renew this Agreement at least thirty (30) days prior to its expiration. In the event the Employee gives notice of intent not to renew this Agreement, the Employee shall not be entitled to Severance. In the event the Company gives notice of intent not to renew this Agreement, at the expiration of the Agreement the Employee shall be entitled to fifty-two (52) weeks' Severance. -3- 5. Termination ----------- (a) Termination for Cause --------------------- The Company may terminate Employee's employment at any time for cause, upon written notice specifying the reasons. As used herein, the term "cause" shall mean: (i) The commission by Employee of (A) any act of embezzlement, fraud, larceny, theft, or (B) other willful misconduct or gross negligence in connection with the performance of Employee's duties which adversely affects the affairs of the Company; (ii) Employee's conviction of a felony, or conviction of a misdemeanor involving moral turpitude; (iii) A material breach of the terms of this Agreement which continues uncured for fifteen (15) days after the Company has given written notice to the Employee specifying in reasonable detail the material breach. (b) Termination Without Cause ------------------------- Notwithstanding any other provision of this Agreement, the Company may terminate Employee's employment, without cause, at any time, for any reason, effective upon thirty (30) days' written notice to the Employee. In the event of a termination without cause, the Employee shall be entitled to fifty-two (52) weeks' Severance. (c) Resignation ----------- The Employee may at any time during the term of this Agreement resign employment, effective upon ninety (90) days' written notice to the Company, or upon such shorter period of notice as the parties may agree in writing. Upon such resignation, the Employee shall not be entitled to any Severance, and, except as otherwise specifically set forth herein, the obligations of the Company to the Employee under this Agreement shall terminate upon the effective date of such resignation. Employee agrees to continue to perform his duties hereunder, and otherwise assist the Company in an orderly transition, during such ninety-day period. (d) Disability ---------- The Company may terminate Employee's employment if, at any time during the term of this Agreement, the Employee shall become disabled so that he is unable to perform the Employee's regular duties of employment, with reasonable accommodation, for a period of ninety (90) days in the aggregate during any 180-day period. The determination of the Employee's disability for purposes of this Section 5(d) shall be made -4- by a qualified physician acceptable to both parties. In the event that the Company and the Employee are unable to agree upon a qualified physician, each party shall select a qualified physician, and in the event those two physicians are unable to agree upon a determination as to the Employee's disability, a third neutral physician ("Neutral Physician") acceptable to the parties shall be selected. The determination of disability by the Neutral Physician shall be final and binding for purposes of this Agreement. In the event this Agreement is terminated pursuant to this Section 5(d), the Employee shall be entitled to fifty-two (52) weeks' Severance. Such Severance shall be offset dollar for dollar by any payments made in the aggregate to the Employee under the Company's existing Salary Continuation and Long-Term Disability Plan(s). (e) Death ----- This Agreement and all obligations of the Company hereunder shall terminate upon the death of the Employee. In the event of a termination upon the death of the Employee, monies or compensation owed by the Company to the Employee up to the date of termination shall be paid to the Employee's estate or designee. (f) Accrued Vacation ---------------- All accrued vacation owed by the Company to the Employee upon termination of employment shall be included in the Employee's last paycheck following active employment. 6. Confidential Nature of this Agreement ------------------------------------- Employee agrees to keep confidential the terms of this Agreement. A violation of this provision shall entitle the Company to terminate this Agreement immediately, for cause, as set forth in Section 5(a)(iii). Notwithstanding the above, the Employee may disclose the terms of this Agreement to his/her immediate family, bankers, accountants, attorneys, and other financial advisers, the Internal Revenue Service, the Massachusetts Department of Revenue, in the event such disclosure is required by prospective employers or others to review the restrictive covenants contained herein, in the event of litigation or arbitration involving this Agreement, or in the event that such disclosures shall be compelled by law. 7. Confidential and Proprietary Information ---------------------------------------- (a) The Employee understands and acknowledges that in the course of employment with the Company, Employee will have access to confidential and proprietary information of the Company and its Affiliates (which shall mean entities controlling, controlled by or under common control with the Company, including without limitation, Saint Louis Bread Company, Inc. and its Affiliates) which constitute valuable, special and unique assets of the Company and its Affiliates. For purposes of this Agreement, such -5- confidential and proprietary information shall include, without limitation, the following: trade secrets; operating techniques; procedures and methods; product specifications; customer lists; account information; price lists; discount schedules; budgets; strategic plans; financial and other projections; correspondence with customers, vendors, lenders, employees, partners or others; drawings; software; leads from suppliers; marketing techniques; procedures and methods; employee lists; internal financial reports of the Company and its Affiliates; sourcing lists; and recruiting lists (collectively, "Confidential Information"), but shall not include any information which is commonly known or in the public domain. (b) The Employee agrees that during the term of this Agreement and at any time thereafter, Employee will not, without the authorization of the Company: (i) disclose any Confidential Information to any person or entity for any purpose whatsoever; or (ii) make use of any Confidential Information for Employee's own purposes or for the benefit of any other person or entity, other than the Company and its Affiliates. (c) The Employee agrees that upon the request of the Company or upon termination of employment, Employee shall return to the Company all documents or other materials, including electronic or computerized data, containing or relating to Confidential Information, along with all other Company property. 8. Restrictive Covenant -------------------- The Employee shall not, other than in the course of employment with the Company, directly or indirectly, either as an individual, employee, partner, officer, owner, director, shareholder, advisor or consultant, or in any other capacity whatsoever, on behalf of any person, firm, corporation, partnership or entity: (a) during the term of this Agreement, and for one (1) year after its termination, for whatever reason, be employed by or retained as a consultant or advisor to a competitive entity in the bakery/coffee/deli business. For purposes of this Agreement, "competitive entity" includes, without limitation, the following companies doing business as: Paradise Bakery, Inc.; Starbucks; Bruegger's Bagel Bakery; Finagle-A-Bagel; Le Boulangerie; Great Harvest; Einstein's/Noah's; Corner Bakery; Big Sky; AFC Enterprises, Inc. and their respective parents, subsidiaries, franchisees, affiliates, successors or assigns. Additionally, "competitive entity" shall include, without limitation, any company which generates in the aggregate more than 50% of its revenues from the retail sales of baked goods and coffee, and their respective parents, subsidiaries, franchisees, affiliates, successors or assigns. Notwithstanding the above, the direct or indirect ownership of one percent (1%) or less of the stock of a competitive entity whose shares are listed on a national securities exchange or are quoted on the National Association of Securities Dealers Automated Quotation System or so-called Bulletin Board shall not, in and of itself, be deemed to be a violation of this Section 8(a); -6- (b) during the terms of this Agreement and for one (1) year after its termination, for whatever reason, recruit, solicit, hire, or assist any other person or party in recruiting, soliciting, or hiring any employee of the Company or any of its Affiliates or any of their respective franchisee. The Company may, in its sole discretion, waive enforcement of any of the provisions of this Section 8, which waiver shall be evidenced solely by the execution and delivery to the Employee of a written document setting forth the terms of such waiver, executed by an authorized representative of the Company. 9. Enforcement ----------- Employee agrees and acknowledges that a violation of Sections 7 or 8 of this Agreement shall entitle the Company to terminate this Agreement immediately, which termination shall be conclusively deemed to be a termination for cause, as set forth in Section 5(a) hereunder. In the event of a violation of Sections 7 or 8 of this Agreement, any further Severance, salary continuation, Benefits or other future compensation otherwise owed to the Employee pursuant hereto shall be forfeited. The Employee acknowledges and agrees that the Company's remedies at law for a breach of Sections 7 or 8 of this Agreement are inadequate and that the harm caused thereby is irreparable. The Employee expressly agrees that in the event of a violation of Sections 7 or 8 of this Agreement, the Company shall be entitled to equitable relief enforcing the terms of this Agreement, including without limitation, specific performance, a temporary restraining order, preliminary injunction or permanent injunction to prevent any breach or attempted breach thereof. The provisions of Sections 7, 8 and 9 shall survive the termination of this Agreement, in addition to any others which may survive pursuant to the terms of this Agreement. 10. Severability ------------ If any provision of this Agreement including, without limitation, Sections 7, 8 or 9 hereof, is declared or found to be illegal, unenforceable, void, overbroad, or unreasonable in scope, territory, or duration, in whole or in part, then both parties will be relieved of all obligations arising under such provision, but only to the extent it is illegal, unenforceable, void, overbroad, or unreasonable in scope, territory or duration. The intent and agreement of the parties to this Agreement is that this Agreement will be deemed amended by modifying any such illegal, unenforceable, void, overbroad or unreasonable provision to the extent necessary to make it legal and enforceable while preserving its intent, or if such is not possible, by substituting therefor another provision that is legal, enforceable and achieves the same objectives. The foregoing notwithstanding, if the remainder of this Agreement will not be affected by such declaration or finding and is capable of substantial performance, then each provision not so affected will be enforced to the extent permitted by law. -7- 11. Arbitration ----------- Any controversy or claim arising out of or relating to this Agreement or Employee's employment with the Company, except for claims of violation by the Employee of Sections 7 and 8 hereof which may be enforced by the Company in a court of competent jurisdiction pursuant to Section 9 hereof, shall be settled exclusively by binding arbitration before a single arbitrator in the City of Boston, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The provisions hereof shall be a complete bar and defense to any suit, action or proceeding instituted by the Employee in any federal, state or local court or before any administrative tribunal with respect to any matter which is arbitrable as herein set forth. This Section shall survive the termination or expiration of this Agreement. Nothing herein contained shall be deemed to give any arbitrator any authority, power, or right to alter, change, amend, modify, add to, or subtract from any provisions of this Agreement. The arbitrator shall have no authority to award punitive damages or attorney's fees to any party. The decision of the arbitrator shall be final and conclusive. Judgment on an award rendered by the arbitrator may be entered in any court of competent jurisdiction. 12. No Conflicting Agreements ------------------------- Employee hereby represents and warrants that neither the entry into this Agreement nor its performance by Employee will conflict with or result in a breach of the terms, conditions or provisions of any other agreement or other obligation of any nature to which Employee is a party, or by which he is otherwise bound, including, without limitation, any other employment agreement, non-competition agreement, or confidentiality agreement. 13. Governing Law ------------- The terms hereof shall be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to its conflict of laws rules which may otherwise require the application of the law of another jurisdiction. 14. Successors and Assigns ---------------------- This Agreement shall be binding upon and inure to the benefit of the Company and the Employee and their respective successors, assigns, heirs, legal representatives, executors and administrators. -8- 15. Notices ------- (i) All notices to the Employee shall be addressed to Employee at: Sam Yong P.O. Box 812903 Wellesley, MA 02181-0027 or to such other place(s) as may be designated by written notice to the Company. (ii) All notices to the Company shall be addressed to the Company at: 19 Fid Kennedy Avenue Boston, MA 02210 Attention: C.F.O. With copies to: Walter D. Wekstein, Esq. Gadsby & Hannah LLP 225 Franklin Street Boston, MA 02110-2811 or to such other place(s) as may be designated by written notice to Employee. (iii) Notice shall be sufficient if given by hand or by certified mail, postage prepaid, return receipt requested, addressed to the party at its address described above. Unless otherwise notified in writing, each party shall direct all sums payable to the other party at its address for notice purposes. 16. Headings -------- The captions and headings in this Agreement are for convenience and reference only, and they shall in no way be held or deemed to define, modify or add to the meaning, scope or intent of any provision of this Agreement. 17. Entire Agreement ---------------- This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, written or oral on the subject matter hereof including, but not limited to, offer letters, employment letters, and agreements concerning severance pay. -9- 18. Amendments ---------- This Agreement may be modified only by written agreement signed by both the Employee and the Company. 19. Waiver ------ The failure of any party at any time to require the performance of any provision(s) hereof shall in no manner affect the right(s) of such party at a later time to require the performance of said provision(s), and shall not be deemed a waiver of any obligations hereunder. IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement under seal, as of the date first above written. AU BON PAIN CO., INC. By: /s/ Ronald Shaich Date: June 16, 1998 Witness: /s/ Mariel Clark Date: June 16, 1998 SAM YONG /s/ Sam Yong Date: June 16, 1998 Witness: _________________________ Date: _____________________
EX-27 3 FINANCIAL DATA SCHEDULE
5 0000724606 Au Bon Pain Co., Inc. 6-MOS DEC-26-1998 JUL-11-1998 690,052 0 6,885,796 187,110 6,114,877 17,618,984 102,475,769 81,616,009 174,489,741 19,435,028 0 0 0 1,195 0 174,489,741 53,942,016 57,253,592 19,965,766 56,913,493 86,545 0 1,407,935 (1,154,381) (375,000) (779,381) 0 0 0 (779,381) (0.07) (0.07)
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